by Diana Mandia

(Reuters) – Wall Street is expected to be in disarray and the European stock markets are moving cautiously upwards on Tuesday at mid-session, the day after a session marked by the resignation of Prime Minister Sébastien Lecornu, to whom Emmanuel Macron granted 48 additional hours to negotiate with the parties. Futures on New York indices signal an opening up 0.06% for the Dow Jones, but down 0.03% for the Standard & Poor’s-500 and 0.01% for the Nasdaq, which ended Monday with closing records thanks to values ​​linked to artificial intelligence. In Paris, the CAC 40 gained 0.38% to 8,002.41 points around 10:52 GMT, after having lost 1.36% on Monday due to the political crisis in the second largest economy in the euro zone.

In Frankfurt, the Dax advances by 0.22% and in London, the FTSE 100 gains 0.11%.

The EuroStoxx 50 index is up 0.23%, the FTSEurofirst 300 gains 0.20% and the Stoxx 600 gains 0.21%.

Caution continues to reign in Europe after the new political tremors in France, where Sébastien Lecornu, who resigned unexpectedly on Monday amid strong criticism of the composition of the newly appointed government, was tasked by President Emmanuel Macron with leading “final negotiations in order to define a platform of action and stability for the country”.

According to a press release published Tuesday by Matignon, the resigning Prime Minister proposed to focus these discussions on the adoption of a budget for the State and for social security and the future of New Caledonia, while to the calls for the departure of the President of the Republic launched without surprise by LFI and by the RN was added that of Edouard Philippe, his former Prime Minister, who defended the organization of an early presidential election.

“For financial markets, what really matters is the budget and how it is going to be implemented,” says Anthi Tsouvali, strategist at UBS, adding that a situation in which France remains without a government for a while could generate great volatility.

The bond market for its part was calmer on Tuesday after a tense session on Monday, which saw the gap with the French OAT and the ten-year German Bund reach the highest level since January 13, a sign of investor distrust.

The CAC 40 has lagged the rest of Europe since the start of the year, with the index up around 8% since January, compared to double-digit gains for most of its peers, including Germany’s DAX (+22%) and the STOXX 600 (+12%).

In addition to France, investors are keeping an eye on the situation across the Atlantic where the “shutdown” continues in the administration due to lack of agreement between Republicans and Democrats on the budget, even if the impasse has not yet had much impact on the markets, which are instead focusing on the almost certain probability of a rate cut after the October Fed meeting and on optimism regarding the AI ​​sector.

VALUES TO FOLLOW AT WALL STREET

VALUES IN EUROPE The two major luxury stocks in Europe, LVMH and Kering, helped the CAC 40 on Tuesday and rose by 3.3% and 6% respectively, after a change of recommendation from Morgan Stanley to take into account a “creative supply shock” observed in the sector.

The European banking sector gains 0.12%, while Société Générale, Crédit Agricole and BNP Paribas are moving in a dispersed order after the rout the day before against a backdrop of political turbulence in France.

Valneva for its part fell 7.5% after lowering its turnover target for this year.

Nexans drops 3% after Jefferies lowered its recommendation on the French cable maker from “buy” to “hold”.

Elsewhere in Europe, the Danish group Novo Nordisk lost 1.3%, penalized by the rejection by an American court of its appeal against the Medicare drug price negotiation program.

B&M lost 4.7% as the discount retailer warned on Tuesday of a fall in annual profit due to weak sales in the UK.

Shell, which raised its production forecasts for the third quarter, gained 1.6%.

RATE

Euro zone bond yields rose slightly on Tuesday, against a backdrop of political crisis in the euro zone’s second largest economy, but far from the increases recorded the day before.

The ten-year German Bund yield rose 1.7 basis points to 2.7333%. The two-year takes 0.7 basis points to 2.0111%.

In France, the ten-year OAT yield gained 1.8 basis points to 3.5874%. The yield gap between German bonds, a benchmark in the euro zone, and French 10-year bonds, which reflects the risk premium required by investors to hold French debt, stood at 85.4 basis points around 10:40 GMT.

In the United States, the yield on ten-year Treasuries is rather stable at 4.1675%, just like that of its two-year counterpart, which stands at 3.6008%.

EXCHANGES The euro falls further (-0.33%), driven by the political crisis in France, and is trading at 1.1673 dollars.

The greenback gained 0.27% against a basket of reference currencies.

OIL

Brent fell by 0.12% to $65.39 per barrel and American light crude (West Texas Intermediate, WTI) by 0.15% to $61.60, while investors assessed the increase in production decided by OPEC+ from November, lower than forecasts, but which comes in a context of forecast excess supply.

METALS

Gold reached a record high on Tuesday, at $3,977.19 per ounce, amid demand for safe-haven assets and bets on a Fed rate cut as the shutdown continues in the United States.

NO MORE MAJOR ECONOMIC INDICATORS ON THE AGENDA FOR OCTOBER 7

(Some data may have a slight lag)

(Writing by Diana Mandiá, editing by Kate Entringer)

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